Socialism on the Back Foot in Spain
June 2nd, 2009
This week, the news centred on the state of the Spanish economy with an interesting perspective from a Socialist publication which helpfully asserts that the crisis “cannot be solved in the interests of the ruling elite without an unprecedented destruction of industry, employment and wages.”
In this article we read:
“All of the processes that drove the growth in the Spanish economy are in the process of disintegration. The collapse of the building and housing construction industry accounts for the largest slice of the current unemployment rate with the Spanish property market falling for 12 consecutive months. Building quickly came to a standstill at the end of last year after the banks stopped lending. Now the problem is compounded by companies defaulting on their payments to the banks.”
As two other articles comment this week, Spain really is struggling to compete in a worldwide market. In Let Them Dig Holes, the Spanish Prime Minister envisions a future of more computers and fewer bricks, with technology-driven growth from sectors like wind power.
Before that can happen, economists say Spain needs to follow the route Germany took with structural economic reforms to raise competitiveness and compete globally.
In Spanish Public Debt to Rise to 60% GDP, this theme of competitiveness is reiterated:
“Economists say that if Spain is to return to healthy growth, it needs to introduce reforms to restore competitiveness lost during years of relatively high inflation, especially as euro membership means it cannot allow its currency to depreciate.”
France, of course, has exactly the same problem. A Socialist government which can no longer afford to make good on their promises of a shorter working week, better security and improved pension payments – unless they are directly linked to increases in productivity.
Unlike France, however, Spain has yet to acknowledge or grapple with this particular issue as Spain’s Prime Minister promises “not to cede to business demands to make it cheaper to hire and fire.”
I suspect that, in time, this too will prove to be a promise that the country cannot afford to keep.
On a lighter note, new data from Knight Frank shows that, while Spain’s housing market is suffering, it is by no means the worst affected country.
Tallying year-on-year decreases in house prices – Norway, Ireland, Denmark, Poland, Hong Kong, Estonia, UK, United States, Singapore, Dubai and Latvia – all fared worse than Spain with annual decreases between 9% and a whopping 36%.
Spain’s modest loss of almost 7% is nothing to shout about – except that, looking at some of its neighbours – it could be a lot worse.
Martin Dell, Kyero.com
Post Mortem: Mark Stucklin reminds us that the Knight Frank report is based on official government figures. In the case of Spain, we know that these are woefully optimistic and inaccurate.
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- Spain still vulnerable to adjustment in House Prices
- Spain Will Bounce Back by 2010 – Reyal Urbis
- Spain: Acid Test for the Euro
